Electricity selloff 'failed to deliver' on cheaper power

The privatisation of government-owned electricity assets has failed to deliver cheaper power, with efficiency falling sharply as power prices have risen well above the underlying rate of inflation, a study by The Australia Institute has found.

The privatisation of government-owned electricity assets has failed to deliver cheaper power, with efficiency falling sharply as power prices have risen well above the underlying rate of inflation, a study by The Australia Institute has found.

Victoria was the first state to sell off its power sector assets, reaping the government windfall profits.

Since then, the number of management staff has risen along with a surge in sales staff, which has blunted benefits from the move.

Since privatisation in the 1990s, electricity prices have heavily outpaced the inflation rate, the study found, rising by 170 per cent compared with an increase of 60 per cent in the consumer price index.

Also notable is the fact that power prices in Victoria have risen in line with prices in other states, so that privatisation has delivered no specific benefits to consumers.

"Competition may well be beneficial in theory but it means the firms themselves have to put resources into selling a product," the study noted.

Senior research fellow with The Australia Institute, David Richardson, said a productivity slump in the electricity sector has been a significant factor in the price rises.

"Since June 1995, productivity in electricity, gas and water declined by 24.9 per cent. All other Australian industries saw an increase of 33.6 per cent," Mr Richardson said.

"The number of managers in the electricity sector has increased by a staggering 217 per cent since 1997.

"Yet, at the same time there was a much smaller increase in frontline staff, with the number of technicians and trades workers increasing by just 28 per cent."

In 1997 there was one manager for every 13 workers. By 2012 there was one manager for every nine workers. Over the same period, the number of sales workers increased from 1000 to 6000.

"It seems remarkable that a sales force of 6000 people is necessary to sell undifferen-tiated homogeneous products like electricity, gas and water," the study noted, "yet this is a consequence of corporatisation and privatisation as well as the introduction of new trading schemes."

Mr Richardson said: "During the privatisation of Victoria's network a lot of promises were made that it would deliver lower prices . . . and former premier Jeff Kennett continues to sing the praise of privatisation.

"While Premier O'Farrell and Peter Costello might believe a power selloff is the answer to NSW's and Queensland's budget problems, it's unlikely to ease cost-of-living pressures and might even slug consumers with higher bills and worse service."